A New Markets Tax Credit (NMTC) transaction brings people and communities together with a common goal of supporting an economic development project in a distressed part of the country. Each party, through a collaborative effort, aims to finalize the transaction as efficiently as possible, which ultimately delivers long-term value to that community. Having experienced professionals representing each party is essential.
In every NMTC transaction, like a sports team, participants play a role that is crucial for the overall success of the “team.” Each participant also has their own support team that spends the time behind the scenes to make sure everyone can perform at a high level. Most participants, however, play a singular role. The attorney drafts the legal documents, the investor buys the tax credits, and so on. Uniquely positioned is the accounting firm, which is the Swiss army knife of an NMTC transaction, often playing multiple roles simultaneously.
An accounting firm in an NMTC transaction may fill multiple transaction roles, but three roles often rise to a level of critical importance: 1) transaction modeling; 2) project consulting; and 3) seven-year compliance. Each role, though different, serves an important function that helps ensure a smooth and effective transaction.
Transaction Modeling
The importance of each model produced during an NMTC transaction cannot be understated. The process begins and ends with the first run and the final version of the model. Without a working model, all other work ceases. A transaction model memorializes the entire transaction and displays each party’s role, their cash flow, and the ultimate impact of the NMTC transaction. The model serves as the single source of truth for transactions and is the basis for all legal opinions. Without a reputable and experienced accounting firm to run the model, the entire transaction is at risk of noncompliance with the stated program rules and requirements. In short, the accounting firm preparing the model is critical to its success.
Project Consulting
The NMTC Program by its nature is messy, confusing, and foreign. The process to complete a transaction successfully is complex. It is no wonder that an entire industry of NMTC consultants has sprung up with a dedicated purpose of lending their expertise to nonprofits, small business owners, and everyone in between. Project consultants may promise a lot, but those who are true experts can be hard to identify.
Accounting firms, by their very nature, are filled with seasoned professionals with deep subject matter knowledge and technical capabilities. By default, accounting firms are often trusted advisors in areas where complexities thrive. The NMTC Program is no different, and accounting firms work alongside other teams to help provide clarity. To the accounting firm, a complex program is a problem to be solved, an issue where guidance can be offered, and where true value to a client can be delivered.
Seven-Year Compliance
The closing of an NMTC transaction is the shortest part of the entire NMTC process. In about 90 days, a team of 20 to 30 dedicated professionals identified issues, prepared a model, documented the transaction, and funded the project. What’s left when the wires are processed? Seven years of compliance.
The NMTC compliance period is seven years. This allows the tax credit to be fully claimed. However, this period also requires reporting to the government, as well as the preparation of tax returns, compliance certificates, and financial statement audits. No other group may be as prepared or as practiced as an accounting firm to perform the NMTC compliance function. It is literally what an accounting firm performs daily. Systems, processes, and checklists are built to help ensure completeness and accuracy. Accounting firms take the complex, boil it down to a process, and execute to help ensure that trust in a financial system is vindicated.
The Role of Forvis Mazars
As an accounting firm with more than 100 years of experience, Forvis Mazars is well positioned to help meet the needs of the NMTC Program and all its transaction participants. Forvis Mazars, through the NMTC team, can produce a model through TaxCred PRO® for New Markets Tax Credit, can guide a project through an NMTC transaction from start to finish, and can support clients through the next seven years of NMTC compliance.
To learn more about how Forvis Mazars supports communities through the NMTC Program or to speak with a team member at Forvis Mazars, please contact us.